XTO Energy (XTO)

2008 Compared to 2007

For the year 2008, net income was $1.9 billion compared with net income of $1.7 billion for 2007. Earnings for 2008 include the net after-tax effects of both a $46 million non-cash derivative fair value gain and an $81 million impairment of proved properties. Earnings for 2007 include the net after-tax effects of a $28 million non-cash derivative fair value loss.

Revenues for 2008 were $7.7 billion, or 40% higher than 2007 revenues of $5.5 billion. Gas and natural gas liquids revenue increased $1.5 billion because of a 31% increase in gas production, a 16% increase in natural gas liquids production, a 4% increase in gas prices from an average of $7.50 per Mcf in 2007 to $7.81 in 2008 and a 7% increase in natural gas liquids prices from an average price of $45.37 per Bbl in 2007 to $48.76 in 2008 (see “Significant Events, Transactions and Conditions – Product Prices – Gas” above). Increased production was attributable to the 2008 acquisition and development program.

Oil revenue increased $592 million because of a 19% increase in production, primarily due to the 2008 acquisition and development program, and a 25% increase in oil prices from an average of $70.08 per Bbl in 2007 to $87.59 in 2008 (see “Significant Events, Transactions and Conditions – Product Prices – Oil” above).

Expenses for 2008 totaled $4.2 billion, or 60% higher than total 2007 expenses of $2.6 billion. Increased expenses are generally related to increased production from acquisitions and development and related Company growth. Production expense increased $327 million and per Mcfe increased from $0.93 in 2007 to $1.10 in 2008 primarily because of overall price increases as well as increased water disposal, power and fuel costs and certain one-time and discretionary items related to recent property acquisitions including increased compression, maintenance and workover costs. Taxes, transportation and other expense increased $259 million and per Mcfe increased from $0.67 in 2007 to $0.82 in 2008 primarily because of higher product prices and higher transportation costs related to higher throughput volumes. Exploration expense increased $36 million primarily because of increased seismic costs in the Gulf of Mexico and the Woodford and Fayetteville Shales.

Depreciation, depletion and amortization (DD&A) increased $838 million primarily because of increased production. On an Mcfe basis, DD&A increased 33% from $1.78 in 2007 to $2.37 in 2008 because of higher acquisition, development and facility costs as well as an impairment of proved properties of approximately $128 million, or $0.15 per Mcfe, and a $107 million, or $0.13 per Mcfe, increase in the impairment of unproved properties.

General and administrative expense increased $151 million. Of this increase, $105 million was the result of an increase in non-cash incentive award compensation primarily as a result of additional incentive award grants in 2007 and 2008. Increased general and administrative expense, excluding non-cash incentive award compensation, is primarily because of higher employee expenses related to Company growth. Excluding non-cash incentive award compensation, general and administrative expense per Mcfe was $0.25 in 2008 and 2007 as increased personnel and other costs were offset by increased production.

The derivative fair value gain for 2008 was $85 million compared to $11 million in 2007. The 2008 gain is primarily related to the gain on certain crude oil swap agreements that did not qualify for hedge accounting. The 2007 gain is primarily related to the ineffective portion of hedge derivatives. See Note 7 to Consolidated Financial Statements.

Interest expense increased $232 million, primarily because of a 97% increase in the weighted average borrowings to partially fund property acquisitions. Interest expense per Mcfe increased from $0.38 in 2007 to $0.56 in 2008.

The 2008 effective income tax rate was 36.8%, as compared to a 36.0% effective rate for 2007. The current portion of total income taxes was 13% in 2008 and 31% in 2007. The decline in the current portion of total income taxes was primarily due to increased development costs and accelerated tax depreciation as allowed by changes to the tax rules in 2008. Development costs are generally deducted for income tax purposes over a shorter term than for financial accounting purposes.

Nine Months Ended September 30, 2008 Compared with Nine Months Ended September 30, 2007

Net income for the nine months ended September 30, 2008 was $1.56 billion, compared to $1.23 billion for the same 2007 period. Earnings for the first nine months of 2008 include the net after-tax effects of a $7 million non-cash derivative fair value gain. Earnings for the first nine months of 2007 include the net after-tax effects of a $27 million non-cash derivative fair value loss.

Total revenues for the first nine months of 2008 were $5.73 billion, 46% higher than revenues of $3.92 billion for the first nine months of 2007. Operating income for the first nine months of 2008 was $2.80 billion, a 35% increase from operating income of $2.08 billion for the comparable 2007 period. Gas and natural gas liquids revenues increased $1.35 billion primarily because of the 32% increase in gas production and the 19% increase in natural gas liquids production, as well as the 10% increase in gas prices and the 34% increase in natural gas liquids prices. Oil revenue increased $433 million because of the 16% increase in production and the 30% increase in prices.

Expenses for the first nine months of 2008 totaled $2.94 billion, a 60% increase from total expenses for the first nine months of 2007 of $1.84 billion. Increased expenses are generally related to increased production from development and acquisitions and related Company growth. Production expense increased $230 million primarily because of increased production and increased compression, maintenance, workover, water disposal and power and fuel costs. Taxes, transportation and other increased $242 million primarily because of higher product prices and higher transportation costs related to higher throughput volumes. Exploration expense increased $29 million primarily because of increased seismic costs in the Gulf of Mexico and the Woodford and Fayetteville shales. Depreciation, depletion and amortization increased $463 million because of increased production and higher acquisition, development and facility costs. General and administrative expense increased $105 million because of a $72 million increase in non-cash incentive award compensation and increased other general and administrative expense primarily due to higher employee expenses related to Company growth.

The derivative fair value loss for the first nine months of 2008 was $3 million compared to a $10 million gain in the same 2007 period. The 2008 loss is primarily related to the $38 million loss recorded on certain natural gas futures that no longer qualify for hedge accounting due to the September 2008 bankruptcy filing of the parent company of one of our counterparties as well as the loss related to the ineffective portion of hedge derivatives. These were partially offset by the gain on natural gas basis swaps that do not qualify for hedge accounting. The 2007 gain is primarily related to the ineffective portion of hedge derivatives. See Note 6 to Consolidated Financial Statements.

Interest expense increased $167 million primarily because of a 101% increase in the weighted average borrowings incurred primarily to fund acquisitions. The 2008 year-to-date effective income tax rate was 36.9% compared with a 36.1% effective rate for the nine-month 2007 period. The higher 2008 rate is primarily related to a change in our estimated permanent differences in 2008 and the benefit of a lower Texas state rate in 2007.

25

Table of Contents

Six Months Ended June 30, 2008 Compared with Six Months Ended June 30, 2007

Net income for the six months ended June 30, 2008 was $1.04 billion, compared to $815 million for the same 2007 period. Earnings for the first half of 2008 include the net after-tax effects of a $31 million non-cash derivative fair value gain. Earnings for the first six months of 2007 include the net after-tax effects of a $23 million non-cash derivative fair value loss.

Total revenues for the first half of 2008 were $3.61 billion, 44% higher than revenues of $2.50 billion for the first half of 2007. Operating income for the first half of 2008 was $1.83 billion, a 33% increase from operating income of $1.37 billion for the comparable 2007 period. Gas and natural gas liquids revenues increased $856 million primarily because of the 36% increase in gas production and the 22% increase in natural gas liquids production, as well as the 6% increase in gas prices and the 43% increase in natural gas liquids prices. Oil revenue increased $248 million because of the 13% increase in production and the 28% increase in prices.

Expenses for the first half of 2008 totaled $1.78 billion, a 58% increase from total expenses for the first half of 2007 of $1.13 billion. Increased expenses are generally related to increased production from development and acquisitions and related Company growth. Production expense increased $133 million primarily because of increased production and increased maintenance, workover and water disposal costs. Taxes, transportation and other increased $160 million primarily because of higher product prices and higher transportation costs related to higher throughput volumes. Depreciation, depletion and amortization increased $291 million because of increased production and higher acquisition, development and facility costs. General and administrative expense increased $70 million because of a $43 million increase in non-cash incentive award compensation and increased other general and administrative expense primarily due to higher employee expenses related to Company growth.

The derivative fair value gain for the first six months of 2008 was $42 million compared to $13 million in the same 2007 period. The gain in 2008 is primarily related to natural gas basis swap agreements that do not qualify for hedge accounting. The 2007 gain is primarily related to the ineffective portion of hedge derivatives. See Note 6 to Consolidated Financial Statements.

Interest expense increased $99 million primarily because of a 106% increase in the weighted average borrowings incurred primarily to fund acquisitions. The 2008 year-to-date effective income tax rate was 36.4% compared with a 36.2% effective rate for the six-month 2007 period.

Quarter Ended March 31, 2008 Compared with Quarter Ended March 31, 2007

Net income for first quarter 2008 was $465 million compared to $383 million for first quarter 2007. First quarter 2008 earnings include the net after-tax effects of a $9 million non-cash derivative fair value gain. First quarter 2007 earnings include the net after-tax effects of a $23 million non-cash derivative fair value loss.

Total revenues for first quarter 2008 were $1.67 billion, a 43% increase from first quarter 2007 revenues of $1.17 billion. Operating income for the quarter was $824 million, a 27% increase from first quarter 2007 operating income of $647 million. Gas and natural gas liquids revenues increased $402 million because of the 37% increase in gas production and the 49% increase in natural gas liquids production, as well as the 4% increase in gas prices and the 47% increase in natural gas liquids prices. Oil revenue increased $105 million because of the 21% increase in oil prices and the 14% increase in production.

Expenses for first quarter 2008 totaled $849 million, a 63% increase from first quarter 2007 expenses of $522 million. Increased expenses are generally related to increased production from development and acquisitions, higher commodity prices and related Company growth. Production expense increased $64 million primarily because of increased overall production and increased maintenance and workover costs. Taxes, transportation and other increased $73 million from the first quarter of 2007 primarily because of higher product prices and higher transportation costs related to higher throughput volumes. Depreciation, depletion and amortization increased $143 million because of increased production and higher acquisition, development and facility costs. General and administrative expense increased $33 million because of a $24 million increase in non-cash incentive award compensation and increased other general and administrative expense primarily due to higher employee expenses related to Company growth.

The derivative fair value gain for first quarter 2008 was $16 million compared to $12 million for first quarter 2007. The gain in first quarter 2008 is primarily related to the change in fair value of natural gas basis swap agreements that do not qualify for hedge accounting partially offset by the ineffective portion of hedge derivatives. See Note 6 to Consolidated Financial Statements.

Interest expense increased $44 million primarily because of a 93% increase in weighted average borrowings incurred primarily to fund acquisitions. The effective income tax rate for first quarter 2008 was 36.6%, as compared with 36.2% for first quarter 2007.

20

Table of Contents